Inside the mind of a charity investment manager, Ed

I’ve always felt grateful to have been able to partner and look after charities and not-for-profit organisations. It has brought me into contact with people and organisations that share one common and admirable goal – they’re dedicated to making a real difference and help to generate positive change in society.

As much as I am in awe of their dedication, I have also gained a deep understanding of the pressures that these organisations face and the great level responsibility that is placed on trustees and controllers. The Covid-19 pandemic helped to highlight the considerable work done by those in the third sector – and its importance as a force for help and good.

However, the changes that the pandemic and its response made to society also had a substantial impact on charities. According to the Charity Commission in a 2021 survey, 90% of charities said that Covid-19 had a negative impact, whether on service delivery, finances or on staff and staffing. While a small number of charities saw their income increase the majority were not as fortunate. In all, 60% of charitable organisations said the pandemic had a negative impact on their finances coupled with soaring demand for their services. Charities finances were being squeezed at both ends.

Fortunately, the worst of the Covid-19 crisis is now behind us – and we can look back at what was an extraordinary time. It feels to me, however, that the need for the services provided by the third sector has been rising for many years, reflecting the extraordinary range of pressures buffeting our modern society.

The leveraging of limited resources

I’m often staggered to see how much positive change can be achieved, even by a small group of people. But when I think about the dedication and determination
of the people that I have met who make up these organisations, it should perhaps come as no surprise – and it can often be both humbling and inspiring. I particularly admire the prudent management of finite resources as charities leverage the resources that are at hand to achieve the highest rate of positive change.

And while that careful financial management has helped to mitigate some of the uncertainty prevalent in financial markets, inflation remains a substantial problem. From an operating perspective it has led to a range of cost pressures, but as wages tend to represent a relatively large component of a charity’s outlay, the cost of staff – as well as increased competition for jobs – has proved a major challenge in the third sector. This squeeze makes it harder to provide the same level of care and service that a charity has done in the past.

From an income perspective, sadly there has been little to cheer. We are always keen to ensure that charities and not for profit organisations retain cash outside investment portfolios, as this is prudent. However, despite the recent rise in UK base rates, interest rates on cash holdings remains relatively low. Fundraising opportunities during the height of the pandemic period were few and far between and now donations and grants too are being impacted by inflation and the rising cost of living. While company dividends that suffered during Covid-19 have recently held up relatively well, equity returns have not been able to keep up with an inflation rate that sits at a multi-decade high.

Investing responsibly

Another major consideration has been the rise of responsible or ethical investment. This considers the impact of the entire organisation and encompasses everything from product sourcing, the drive towards ‘net zero’ and staffing and service provision. Although the idea of having a Responsible Investment Policy is not especially new, it had been something of a grey or at least complex area. This has now been helped by recent Charity Commission guidance.

Our involvement in this process is to help organisations assess their environmental, social and governance (ESG) investment requirements, something that we’re very much able to implement because we can tailor portfolios specifically to our clients’ needs. It is an area in which we work in close partnership with a charity and has provided me with an invaluable insight into the sector. I have no hesitation in repeating that I feel incredibly privileged to partner with charity and not-for-profit organisations. Whether that be in financially-related
matters such as the current concerns about inflation, issues around responsible investing – or providing some support in any way that we are able. I firmly believe that our approach, to consider each organisation individually and learn about its aims, objectives and governance, can provide maximum benefit to the organisations involved. It is a service I am proud to provide.

Please note: This article was released prior to SDR and thus the information may not be in line with the Anti-Greenwashing rule but contextually is appropriate for the time it was written.